Network Address Translation (NAT) was first described in RFC 1631 in 1994. The authors of that document were trying to solve the imminent problem of running out of IPv4 addresses. They proposed a simple but brilliant solution: allow devices on the inside of a network to use the standard pool of unregistered IP addresses currently defined in RFC 1918. The router or firewall at the boundary between the internal private network and the external public network could then use software to rewrite the internal IP addresses of every packet, replacing them with valid registered addresses.
There are four kinds of addresses: inside local, inside global, outside local, and outside global. Inside and outside are relative terms if you're just connecting two private networks. But if you are connecting a private network to the public Internet, the Internet is considered the outside. A local address is generally the private address, while the global address is the globally unique public address.
To help make these terms more clear, suppose you are connecting a network that uses RFC 1918 private addresses to the public Internet. Inside your network you have private addresses, such as 192.168.1.0/24. These are the inside local addresses. NAT will translate these addresses to globally unique registered addresses, which are also the inside global addresses. The addresses on the public Internet are outside global addresses. These external network addresses are all registered in this case, so there is no need to translate them. If translation was needed, an outside global address would be changed to an outside local address.
To put this another way, the address that internal devices use to communicate with other internal devices is the inside local address. The address that internal devices uses to communicate with external devices is the outside local address. The address that external devices uses to communicate with internal devices is the inside global address. Finally, external devices communicate with one another using outside global addresses.
NAT makes it possible to have a huge internal network with thousands of local addresses represented by a handful (or perhaps even just one) global address. This is why NAT is often credited with alleviating the address shortage problem. But it solves this problem only if most people who use it have more local than global addresses.
In practice, NAT offers a huge range of possibilities. You can map local addresses uniquely to individual global addresses. You can share one global address among several local addresses. You can allocate global addresses from a pool as they are requested, or have a single global address and map all local addresses to this one address. You can even define a combination of these different alternatives.
When a device sends a packet out from the private to the public network, the translator replaces the local source address with a registered address, then routes the packet. For an inbound packet, the translator replaces the global address with the local address and routes the packet into the internal network. The translator has a much more difficult job with inbound packets than outbound, because it has to figure out which internal device to send the packet to. Since many internal devices may be using the same global address, the translator has to keep a state table of all of the devices that send or receive packets to or from the external network.
Suppose, for example, that two internal users are both using HTTP to view information on the public network. The translator must be able to determine which packets are intended for which internal device. It's not sufficient to simply look at the external device's IP address�both of these users could be looking at the same web page. They would both wind up with severely scrambled screens if the translator couldn't tell which packets to send to which internal user.
This particular example is made somewhat easier by the fact that HTTP uses TCP. Because TCP is a connection-based protocol, well-defined TCP session initiation and termination helps the translator to sort out the inbound flows. In this case, Cisco's NAT implementation uses Port Address Translation (PAT), which means that the router rewrites the source port numbers, and uses the new values as tags to distinguish between the two flows. Because UDP also uses port numbers, the same PAT technique also works here, although the router doesn't keep the translation table entries active for the same length of time.
ICMP, on the other hand, is considerably more difficult for NAT to keep straight. For example, if two internal users both ping the same external site at the same time, the translator has to assume that it will receive the responses in the same order that they were sent. Fortunately, this rarely causes real problems in production networks. But it is worth remembering that, whether it can use PAT or not, NAT requires the router to keep track of a lot of state information that routers don't usually care about.
Further, because IP addresses and port numbers are included in both IP and TCP checksums, the translator must recalculate these checksum values for every packet. So NAT always consumes more CPU and memory on the router or firewall that it runs on. This resource usage increases rapidly with both the number of packets and the number of different flows.
The other important thing to remember about NAT is that some protocols include IP address information in the payload of the packet, as well as in the IP header. For example, the ubiquitous FTP protocol has a PORT command that contains an IP address encoded in ASCII. In this case, the FTP protocol is well understood and NAT implementations can look out for the PORT command. But in other, less popular protocols, strange problems can occur. And, if a server happens to run FTP on a nonstandard TCP port, you must tell NAT about the change so that it can rewrite the payload addresses.
SNMP also includes IP addresses in packet payloads. For example, IP address information is part of the standard interface MIB because the address is an important piece of information about the interface. However, rewriting addresses in the payloads of SNMP packets is a much more difficult problem than finding the IP address for FTP, because the address could be anywhere in the payload. It is also possible for the addresses in the payload to refer to different interfaces than the address in the header. And, to make the problem even more difficult, there is no common standard format for IP addresses in SNMP packets. They are sometimes transmitted as dotted decimal ASCII strings, as packed hex bytes, or in a variety of other formats depending on the specific MIB. Consequently, Cisco routers do not attempt to rewrite IP addresses in the payloads of SNMP packets.
We have also seen custom-built applications that make life very hard for NAT by encoding IP addresses and port numbers in the data segment of a packet, then using this information to attempt new connections. It can be very hard to get NAT to work in cases like this. Often the only workaround is to encapsulate the ill-behaved application in a tunnel.
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